DEFINITION OF INFLATION.
According to Pigou – “Inflation exists when money income is expanding more than in proportion to increase in earning activity.”

What is Inflation? In a broad sense of the term, inflation means a considerable and persistent rise in the general level of prices over a long period of time. However, there is no universally acceptable definition of inflation. A continuous rise in the general price level over a long period of time . Persistent inflation in perhaps the second most serious macroeconomics problem confronting the world economy today. The persistent inflation and the problems associated with inflation have claimed more attention of the economists than any other macroeconomic problem. This has led to abounding increase in the literature on inflation. In this part of the book, we are concerned with three main aspect of inflation , (i) meaning, measurement and effects of inflation, (ii) theories of inflation and, (iii) the relationship between inflation and unemployment.

WHAT IS CONSIDERABLE RATE OF INFLATION?

The question as to what is a “considerable” rate of inflation can be answered by linking it to the desirability of inflation. A moderate rate of inflation is considered to be desirable and acceptable for at least three reasons: (i) a moderate rate of inflation keeps the economic outlook optimistic, promotes economic activity and prevents economic stagnation, (ii) it is helpful in the mobilization of resources by increasing the overall rate of savings and investment-inflationary financing has, in fact, been widely used to finance economic growth of the undeveloped countries, and (iii) it is historical evident that, despite intermittent deflation, the general price level has exhibited a rising trend, and some increase in the general price level is inevitable in a dynamic and progressive economy.

Now the question arise: What rate of inflation should be considered as the ‘moderate rate of inflation’? This question cannot be answered in specific percentage terms because desirability of inflation depends on the need and the absorption capacity of a country which are subject to variation from time to time. The capacity of a country to absorb inflation may be defined in terms of the limit of the price rise beyond which the economy gets overheated and macro variables like saving, investment, growth of output, BOP position, and employment get adversely affected.

TYPES OF INFLATION .

Inflation is generally classified on the basis of its rate and cause. In this section, we discuss the types of inflation classified on the basis of rate. The types of inflation will be discussed under the cause of inflation. On rate basis, inflation is classified as: (i) Moderate Inflation : When the general level of price rises at a moderate rate over a long period of time, it is called Moderate inflation or creeping inflation. The ‘moderate rate’ may vary from country to country. However, ‘a single digit’ rate of annual inflation is called ‘moderate inflation’. An important feature of moderate inflation is that it is predictable. During the period of moderate inflation, the people continue to have faith in the monetary system and confidence in ‘money as a store if value’. (ii) Galloping Inflation : According to Baumol and Blinder, “Galloping inflation refers to an inflation that proceeds at an exceptionally high rate.” They do not specify what rate of inflation is ‘exceptionally high.’ Example of inflation is that, the pose-War I inflation in Germany is often cited as an example of galloping inflation though some would call it hyperinflation. The wholesale prices in Germany increased 140 percent in 1921 and a colossal 4100percent in 1922. And also prices are increased in another country like, Brazil, Mexico, Peru, etc. (iii) Hyper Inflation : In general , a price rise at more than three-digit rate per annum is called ‘Hyper inflation’. According to some...

YOU MAY ALSO FIND THESE DOCUMENTS HELPFUL

...INFLATION
It can be stated that Inflation is the rise in prices of products as a result of the increase in the quantity of money. This definition however would be inefficient since for two reasons;
1. If we simply term inflation to be a rise in prices of certain products then we will be mistaken because prices might be rising in one sector of the economy yet falling in another sector.
2. We have to take into account that the process may be high...

...Inflation is defined as a sustained increase in the general level of prices which results in a decline in the purchasing power of money. Inflation is measured through the Consumer Price Index (CPI) which measures proportional changes in prices in a representative “basket” of g’n’s, weighted according to their importance in a typical Australian households budget. The RBA aims to keep inflation at an annual rate of 2-3%, and in order to do this a number...

...Inflation in Pakistan. Its Types, causes, measures and effects
WHAT IS INFLATION? DISCUSS ITS TYPES, CAUSES, MEASURES AND EFFECTS.
Introduction:
Collective increase in the supply of money, in money incomes, or in prices refers to inflation. Inflation is generally thought of as an undue rise in the general level of prices.
Definition:
“Inflation is a situation whereby there is a continuous and persistent rise in the...

...Introduction:
1.1. Inflation – General Definition:
Inflation indicates the rise in price of a basket of commodities on a point-to-point basis [1]. Inflation is caused by a persistent increase in the prices of goods and services. Inflation measures the increase in the cost of living over a period of one year. For example, if a set of commodities bought in January 2000 cost Rs 100, and the same set of commodities...

...level of output that’s greater than the full-employment level of output. This situation is associated with inflation because, in the long run, prices will rise, shifting the SRAS curve up to intersect with the LRAS and AD curves. The shock that is implicitly assumed to be hitting the economy is an aggregate demand shock, since that’s the only shock that increases output in the short run and inflation in the long run.
Question 10
The temporary increase in...

...The Cause and Effects of Inflation
Chris Hinman
Most people are aware that inflation is a continuing rise in the general level of prices, but it is also important to know the causes and effects of inflation as well. It is also important to understand that inflation is self-sustaining and can act as a snowball effect. Consumers expecting a rise in prices may increase spending, causing the market prices to rise. In the periods of...

...1. Introduction
Inflation - a global phenomenon is becoming a burning issue in many countries all over the world today.
The Oxford® Dictionary of Business presents the following definition for inflation: “A general increase in prices in an economy and consequent fall in the purchasing value of money.”
In Germany in January 1921, a daily newspaper cost 0.30 marks. Less than two years later, in November 1922, the same newspaper cost 70,000,000 marks. All other...

...the “Inflation and growth of production: theory and practice”.
Thus our presentation contains two main parts.
Firstly we will look out the theory. Here we will single out the keinsian version of this question.
Then we will review some statistic indexes which concern our topic.
1. Inflation - Monetary sense of "enlargement of prices" (originally by an increase in the amount of money in circulation) first recorded 1838 in Amer.Eng.
Kinds
On the Basis of...